Outstanding VAT Returns and Late Payments

The new penalty regime for late submission of VAT returns and payments came into effect on 1 January 2023 and will be applied to VAT returns covering periods that start on or after 1 January 2023.

The new system treats late submission of VAT returns and late payments differently.

The late submission penalty is a points-based system with 1 point being issued for each submission deadline missed. Depending on the frequency with which a business submits VAT returns, once a certain number of points have been received, a £200 penalty is issued.

It is important to note that points are issued for late/non-submission of all VAT returns including ‘nil’ returns and repayment returns.

The points expire after 2 years if the following conditions are met:

• There has been a continuous period of compliance, for example quarterly VAT submissions must be made on time over a period of 12 months
• HMRC submissions across all taxes within the last 24 months have been filed (it doesn’t matter if any of these were initially late).

How to avoid a penalty under the new VAT regime

The best way to avoid penalties under the new regime is to ensure that all VAT returns are submitted by the due date and all outstanding returns are up to date, even if you cannot afford to pay the amount owed and regardless of whether the VAT return results in a payment to HMRC or is a ‘nil’ or repayment return. 

Submitting outstanding VAT returns

The withdrawal of the facility to submit VAT returns using the HMRC online VAT portal was withdrawn on 31 October 2022.

Some businesses, particularly those based overseas, have still not managed to link Making Tax Digital (MTD) compliant software to the MTD portal and are, therefore, struggling to submit VAT returns.

Shorts Chartered Accountants have an authorised agent services account (ASA) which can be used to submit clients’ VAT returns. By adding a business to our ASA, we can check which VAT returns are outstanding and submit these on behalf of the business.

Outstanding VAT payments – New penalties

Late payment penalties are not calculated on a points-based system, instead, businesses that pay their VAT liabilities late will have to pay a percentage penalty based on the value of outstanding monies owed:

The following penalties will apply depending on circumstances:

• No fine will be issued if outstanding VAT liabilities are settled within 15 days of the due date.
• A 2% fine on the value of VAT owed after 15 days.
• VAT still owed after 30 days will be levied with an additional 2% fine

Additionally, VAT still owed after 30 days will incur penalties on a daily basis at the rate of 4% per annum and interest is also payable on late paid VAT and penalties at a rate of 2.5% above the Bank of England base rate.

Unable to pay? Here's what to do?

Once again, the best way to avoid a penalty is to ensure payments are made within 15 days of the due date. However, HMRC can offset payments against debts in earlier periods leaving businesses with unexpected penalties.

To prevent this, Shorts can offer advice on and assistance with putting a payment plan in place. This is known as a time-to-pay agreement and can be negotiated for either past or current debts.

Get in touch with our dedicated VAT Advisory team today for advice on outstanding VAT returns or payments.